Monday, June 25th, 2018 at 12:02am

Moody’s Investor Service downgraded New Mexico’s credit rating last week, sounding an alarm on the fiscal health of our state and its pension funds.

The downgrade – from AA1 to AA2 rating – means our state will get less bang for its buck on infrastructure projects as the cost for borrowing money likely goes up. It also means state leaders need to step up and begin the arduous task of getting our state’s fiscal house in order or face even worse consequences down the road.

In explaining its rationale for the downgrade, Moody’s cited New Mexico’s growing pension liabilities and high Medicaid enrollment, among other budget-related issues.

More than 40 percent of our state’s population is enrolled in Medicaid, insurance for the poor and disabled. The next governor will have to figure out whether that is sustainable, and, if it’s not, how to address it.

Then there’s the thorny matter of pension reform. Our pension funds are billions of dollars away from being actuarially sound. In other words, we don’t have the money needed to cover all of the retirement benefits we’ve promised to state workers down the road.

No one is excited about requiring employees to contribute more of their earnings into the pension funds, reducing benefits, and/or retooling retirement eligibility criteria. But it’s time to start looking at those options, because making promises we can’t keep is worse than making the difficult decisions that will allow us to follow through and deliver on those promises.

Our state has two primary retirement systems – the Public Employees Retirement Association and the Educational Retirement Board. Combined, those two retirement systems had unfunded liabilities of roughly $12.5 billion as of last June, which is astounding. The pension funds cover more than 100,000 workers and retirees.

The pension dilemma is not new. Lawmakers and the governor in 2013 enacted solvency fixes aimed at shoring up the two retirement funds, but those reforms haven’t been as effective as state officials had hoped. In 2016, the Pew Charitable Trusts ranked New Mexico among the country’s worst-performing states for pension fund health.

The outgoing governor and some lawmakers acknowledge that additional pension reforms are necessary. Sen. John Arthur Smith, a Deming Democrat and the chairman of the powerful Senate Finance Committee, and other lawmakers have suggested requiring government agencies and employees to contribute more financially to the funds to help put them in a stronger fiscal position.

They must pursue those efforts with renewed fervor and begin exploring all other options in light of Moody’s decision to downgrade our state’s credit rating. Lawmakers and their interim committees should start having those difficult conversations with the unions right now.

We understand the argument that the generous pension benefits and retirement eligibility are geared toward compensating state workers for receiving less pay than their counterparts in the private sector. But that argument will be of little comfort if we continue heading down the road we’re on and come to a place where our pension funds are empty and we are no longer able to cover the retirement checks promised.

Our gubernatorial candidates – Democratic U.S. Rep. Michelle Lujan Grisham and Republican U.S. Rep. Steve Pearce – need to weigh in on this problem and tell voters how they would fix it.

And when the next legislative session kicks off in January, lawmakers and the next governor need to make pension reform a priority.

There’s time to fix this, but the time to act is now.

This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.